The mortgage settlement looks to be every bit as bad as cynics predicted. The most exacting and detailed reporting on the settlement terms came from attorney Abigail Field, who undertook the painful process of reading the entire agreement and making sense of what the detailed terms meant. And the latest word from the settlement monitor Joseph Smith is yet another confirmation of the settlement process as enforcement theater.

One of her important finds was that the servicing standards, touted as one of the key victories in the deal, were worse than a joke. They didn’t simply call on servicers to obey existing law; they put in place supposedly new standards which in the fine print allowed for such large error rates as to weaken rather than strengthen regulators’ hands. For instance, if you believe in the rule of law, a wrongful foreclosure should be absolutely impermissible. But the regulators have now decided that banks can screw up 1% of the time and they’ll let it slide, the poor wronged homeowner will have to fight that uphill battle all on his own. To put that in practical terms, that means the authorities deem 33,000 wrongful foreclosures since 2008 to be a perfectly acceptable level of theft. Read her post “The Mortgage Settlement Lets Banks Systematically Overcharge You and Wrongly Take Your Home. for more ugly details”

The mortgage settlement signed by 49 states and every Federal law enforcer allows the rampant foreclosure fraud currently choking our courts to continue unabated.

But the kabuki must continue, and Field sent along a cheery bit of propaganda from the mortgage settlement monitor, Joseph Smith. Recall Smith was the banking regulator from North Carolina, the state that contained the two super aggressive regional bank acquirers, NCNB (later NationsBank) and First Union. NationsBank acquired Bank of America and kept its name. So it isn’t hard to imagine that a North Carolina bank regulator would have to be a bank booster to get the job.

Smith gave an update of sorts via an interview in National Mortgage News, which Field was kind enough to circulate. NMN is not type of magazine that asks tough questions. Here are the key bits:

That’s the deadline for the five companies—Ally, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo—to certify that they are complying with 304 servicing standards, everything from loss-mitigation practices to adequate training to proper communication with customers.

“Every indication I have from all five servicers is they will be ready to perform each and every one of the servicing standards on Oct. 2,” says Joe Smith, the former bank regulator hired to oversee implementation of the settlement’s terms. “Each of the firms, to a varying level of severity, is going through a really extensive quality control process with regard to each of the standards.”

Ooh, this is really exciting! Down to the wire but they are all gonna make it! We’ve reported at length (as has Field) on other aspects of how dubious the oversight process it. The servicers have hired the monitors. Smith is not running any auditing or reviews; it’s all been subcontracted, and there are numerous examples of firms conducting the oversight having troubling conflicts of interest. This blog and others also criticized an early (and not required) preliminary report released by Smith as looking like an Administration PR gambit.

Field flagged this disturbing section at the close of the story:

Smith endorses the move to wring bad actors and bad practices out of the mortgage business, but says the price may be less credit at a higher cost.

“The thing the policymakers need to be discussing is the cost of compliance with a necessarily more rigorous mortgage regulatory system,” he says. “I am not saying it’s wrong to have those costs. But I think the banks are going to reduce the number of loans that they are making and reduce the number of counterparties from whom they buy loans. The level of competition in the marketplace overall” will decrease.

“There is a chance,” Smith says, “that the cost of this will reduce competition in the marketplace, and we don’t know how that will affect the availability and cost of credit in the future.”

Smith figures the standards will be loosened, eventually.

“I think the standards we’ve got are effective to address the abuses we’ve had in the past,” he says. “I am not entirely convinced all of them will be needed going forward and can’t be streamlined over time. But it’s not the time to streamline yet. Let’s get them in place and see what works and what doesn’t.”

This is utter garbage. Higher “costs” as in margin to servicers to do it right, will encourage more new entrants and allow them to invest in software platforms to do it right. For Smith to contend that high servicing costs might be a problem, when it was undercharging for servicing that has wrecked records and led to widespread borrower abuses, isn’t just perverse, it’s 180 degrees wrong. The record of servicing is that the industry’s fee structures allow only for servicing portfolios with extremely low delinquency rates. Servicing a delinquent loan costs vastly more than a performing loans; the owners of high touch servicers that focus on distressed portfolios tell me their staffing levels are five times the level of ordinary servicers.

If banks and their boosters like Smith want to keep lending rates high, as in lend to riskier borrowers, they need higher margins in servicing, or else you’ll again see the sort of predatory servicing and courtroom abuses we’ve seen since Fairbanks, a servicer that got the bright idea in the early 2000s of focusing on portfolios with high concentrations of bad loans and entered into a FTC consent decree in 2003. And since 2003, the authorities keep promulgating the same servicing standards, and the industry keeps failing to meet them. Earth to base, you can’t have decent standards and current fee levels, but the solution is always the same: let the industry keep its lousy fee model, and borrowers and rule of law be damned.

Anyone who is touting servicing costs concern based on tired bank bromides (“oh if you make us do anything different it will hurt lending”) doesn’t deserve to be a regulator. Well, except for the state of North Carolina, and except for the Obama Administration, it seems.

26 comments

There’s nothing new here and its been extremely apparent that actions such as the settlement as well as the Fed’s quantitative easing have only one goal, to limit bank exposure and to find ways to pump up bank earnings. What’s being done is to foam the runway for the banks who don’t have a business model except profiting from the latest Fed action or Government program. Listening to David Stockman, Mark Cuban , Neil Barofsky and others discuss current financial markets and the government’s role you come away with the conclusion that the whole system is broken, and that the cures are resulting in a whole new set of diseases.

Legal services organizations should be collecting a massive paper trail of continuing servicer abuse around the country. If servicers fail to meet agreement targets, the target should move straight to their backs and the fraud victims will get another shot.

MARTIN ANDELMAN: Well, and where are the trial attorneys? Where are the lawyers that are there to fight for the underdog against big banking? You know, where are the trial lawyers? Well, if there’s a private right of action and there’s a provision for attorneys’ fees, maybe we’ll see them, you know, enter the game.

NEIL BAROFSKY: Instead you have very underfunded legal aid lawyers who do remarkable work and are just the true, you know, the true unsung heroes of this foreclosure crisis, who, you know, who fight these sort of hopeless battles relentlessly day after day and it’s sort of with a courage and – you know, any of these guys or women could easily jump to a law firm and make 15 times their salary the next day. So they’re there, but the problem is that there’s just not enough of them.

You know, one of the things, as state budgets continue to get slashed in this sort of misguided drive towards austerity, you know legal aid is always one of the things to get cut. They’re underfunded, overworked, and you know it’s one of those things. And you know it was really one of those dark moments in HAMP, when, or in the mortgage modification program, when Geithner and company blocked TARP money to be going to legal aid.

MARTIN ANDELMAN: For legal aid, right.

NEIL BAROFSKY: And that sort of – again, if you think of it as a program that’s designed to help four million homeowners, that doesn’t make sense, but if you think of it as a program that’s really about foaming the runway for the banks, then of course they’re going to block funding for anything that could potentially throw any roadblocks for the banks in their relentless pursuit of profit.

MARTIN ANDELMAN: Yeah, I wrote about that at the time of course and said, you know, that it seems that legal aid is the only thing that TARP funds can’t be used for. I mean, the banks can do whatever else they want with them but, no, we can’t use them for legal aid, there’s some rule about that. I mean, just another craziness thing. Like, you would expect millions of people to scream at the same time, “What?!”

Certainly reinforces the reason why FEMA has those supposedly remote camp settlements planned or built, to contain the 1% and every sycophantic individual both in government as well as the financial establishment who drinks the koolaid. Why also the DHS has stockpiled millions of 40 caliber bullets, probably already have the guns to shoot them, to keep watch over the inmates housed in those FEMA camps. California dreaming, perhaps, but then, what else is there to do without going mad?

Where does it end – makeing rulings that the law only applies part of the time for some certain folks but all of the time for others. Seems like a frightening definition of American exceptionalism. I thought the constitution, both federal and state, did not allow such laws that apply only to certain groups – sort of like spot zoning. It appears that the Financial Services industry and it’s supply chain have been targeted for special consideration. Maybe that fraud who claimed he was doing Gods work was being truthful in his own ego inflated mind. We are seeing how an industry is setting new standards of human behaviour by re-writing the codes of human survival and co-operation. The de-evolution from civilization to survival of the financially fittest. Natural law no longer applies if you have the cash. Rules – screw the rules because they are such an antiquated and trivial hinderance. Corporations created by human law. Law created through eons of struggle. Toss them all when it comes to the speculator king. Let loose from their cages the very animals that have no compassion – the free market should be free to choose it’s own direction unshackled from human interference. Let the free market be free to devour it’s creators – us humans.
I apologize for my rant but, I am at my wits end. Disclaimer, I started out with few wits to come to the end of.

Tom, your wits will be welcome at http://www.movetoamend.org. Go there to get in involved in the national movement for a constitutional amendment stating that “1. Corporations are not people entitled to the constitutional rights of human beings. 2. Money is not speech.”

Corporations and wealthy individuals being able to spend unlimited amounts of money (secretly, too) on campaigns makes a mockery of one person, one vote.

About a constitutional amendment – I am a bit leary about going to that extreme only because, I somehow feel, that below that level the constitution already contaibs within it the argument that corporations are not human and money is not free speech. I believe a corporation is incompetent to even speek as I believe the owners (shareholders) have such a diverse set of opinions on all matters that they could not possibly form an opinion as a unit except only to recieve benifit from the investment itself. for a corporation to go outside of that bound is not in all shareholders best interest but what is said by corporation represents but one face of an entity with multiple personality disorders and one that has no compassion (I think Thomas Jefferson stated something like that). Money as speech – no way – I thought money was a tool to help transact the flow and distribution of goods – a tool devised by man for use by man in trade- an invention of mans imagination much like corporations. As such they can be eliminated by man through decree. Neither corporations or money as been imbued with inailiable rights – only man has that distinction. One cannot yell fire in a crowded theater because it endangers the rights of fellow man. One can be locked up for treading on the rights of others and/or found to be insane. A corporation or money or a piece of dog turd or a hammer has, to my knowledge, never been found in a court of law to be sane or competent. To find the speech of a corporation, one must look at all the owners – no matter how small and use some gauge (another invention) to translate that tower of babble into some conceivable voice – in my view it is an impossiblity beyond comprehension.

Why would our supreme court decide that giving extra protections to a group, beyond what already exists for the rest of us is somehow constitutional in thinking – the decision itself seem beyond the powers or constitution affords – giving protected speach rights to mans inventions

The Constitution already contained implicit prohibitions on all manner of nasty things, according to the Federalists. The Anti-Federalists said “not good enough” and demanded the Bill of Rights.

The Anti-Federalists were correct.

The Constitution already contained a lot of implicit rights, as the abolitionists argued… but they had to pass the Fourteenth Amendment to make it clear that those rights really were supposed to be enforced. (Even then the courts didn’t want to do it; the post-Civil-War courts were *nasty* dishonest.)

I am weary from hearing that some move or another against the banks will reduce lending and raise the cost of borrowing. This should be our goal, in fact. Debt has its place in commerce, but for consumers borrowing should be a last resort. Debt doesn’t expand spending capacity, it destroys it. And when it goes awry, only the banksters are left with money in their pockets.

Take out your cash, stop paying your Bank loans and support only like minded small businesses with your cash. Don’t fear about losing your job. Just start working for yourself by providing fair and honest work. Pay and accept only cash.

Let’s see if I understand. The only mortgages now being written are guaranteed by GSAs. These are still being securitized and sold to to pension funds and the banks’ role in the process is marking up the loans on the securitization and gouging out fees to hold borrower feet to the fire.

As for existing mortgages, which everyone agrees are owned by nobody (thanks to MERS and probably multiple sales to multiple securitized investor patsies, who never cared about anything except getting the fraudulent rating that protected their job and prevented accusations of incompetence), the borrowers are now fair game for any kind of servicer fraud, and those aggrieved will be limited to one on legal redress against the bank electing to screw them, but Joe Smith (no doubt chosen for reasons of anonymity) thinks this is just fine so long as the banks reduce the volume of frauds to a target level no later than October 2.

Of course, a good many existing borrowers have no real hope of continuing to service their mortgages, but this isn’t a problem since the bank servicers can still continue to pretend the borrowers are current, and can remit the expected payments to the investors, taking advantage of the bankers only spigot held open by the Fed. What I don’t understand is why the banks are bothering to foreclose, unless for the increase in fees they can command for those mortgages which offer some margin of fair market value above the loan amount. There can’t be all that many of those. What would make the most sense would be for all the borrowers to default, all the banks to pretend the loans are current, all the investors to pretend the payments are still coming in. Don’t understand why Obama hasn’t thought of this, but perhaps he was preoccupied by important matters like the NFL referee lockout.

The ageements and fines resultant are being entered into under duress – the whole bail out thing was done under duress from a group of wealthy bankers that threatened the entire economy that they would knee-cap us if we didn’t go along. Threatened and made whole the promise, to many of us co-abducties, that your homes and businesses would be set to fire if y’all didn’t pay up (see we did it to mr. Smith – he out on the street so pay up). I thought a contract is void if one of the parties was under duress from the other to sign-up.

He isn’t really a big time crook unless you must let him alone to prevent the loss of public confidence.

The overwhelming influence of great private monopolies in both legislatures and courts cannot continue if we are to maintain popular government. If we fail to regulate grants of public powers properly, invasion of private rights by those powers will be our proper and certain reward.

We had to struggle with the old enemies of peace–business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.
They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.
Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me–and I welcome their hatred.”
Election eve speech at Madison Square Garden (October 31, 1936)
Franklin Delano Roosevelt

“The ageements and fines resultant are being entered into under duress – the whole bail out thing was done under duress from a group of wealthy bankers that threatened the entire economy that they would knee-cap us if we didn’t go along.”

There was no duress. They could simply have nationalized the insolvent banks and booted out the bankers, as is normally done in such circumstances. The only way the bankers could have “crashed the economy” was if the government stood aside and let them.

It is a first time one of a kind project. In theory those of us who joined were actually going to make a major financial debacle right again. We were going to examine 1.8 million mortgage foreclosures for technical error, misrepresentations, fraud, and failure to comply with Federal and state foreclosure laws or procedures.
Many of us are older and have been in the mortgage business in one way or another for 20 plus years. We came from every walk of the industry including Foreclosure Law Firms. So we should all have been skeptical, but the way we were selected for the job set aside our skepticism, we were hopeful that we might fix, at least for some people, this horrendous mortgage debacle all of us saw unfold for almost a decade.
I often refused to sign off on loans because of the complete lack of sense they made. I constantly warned superiors of the tremendous risk we ran by accepting Appraisals on properties that accelerated at 25, 30, and 50% annually or even semi-annually.
My wife ran a small mortgage business and she refused to sell the option payment arms, and the interest only 1.25% teaser rates that produced negative amortization. She would not and did not sell the ever increasing products that lacked any of the traditional restraints on credit risk, ability to pay and property review. She only sold the standard fixed rate and term products and warned hundreds of clients and potential clients of the dangers of what they were trying to do. Most would not listen. Some did. We slept at night when the debacle came crashing down.
However, this 25 billion dollar settlement with the banks seemed like a way to help fix the mess the Government, Banks, Realtors, and Appraisers got us into. Yes, some of it was just plain ignorance and greed on the part of consumers, but it was also sold as the American Dream, the chance of a life time to get ahead, to make a better life for our children, to achieve financial freedom, educate our children at schools we couldn’t even consider before this. It was a sold as a chance to move up to better, bigger, safer neighborhoods. It was sold as the chance of a lifetime. Many of us in the industry knew better, we tried to warn clients, bosses, banks, lenders, but who listens to the peons in the chairs drawing a paycheck.
This 25 billion dollar settlement seemed like the chance to help make it right. The head hunters called us by the hundreds and thousands. It was going to be a program where people with our skills in underwriting, processing, title work, insurance, bankruptcy, foreclosure law, and credit counseling could help right this sinking Titanic. We were told we can make a difference and help make things right for millions of people, and it paid well.
I was with the second wave of “recruits”. I was impressed. In a training class of 70 people at the bank I was to work with most of us were underwriters and processors with a smattering of actual Bar registered lawyers. The amount of mortgage and foreclosure knowledge was tremendous. From what I could see and hear, it seemed we could fix this debacle pretty quick. Across the country and with the 14 major banks and lenders involved there would be thousands of us, all with years of experience and a determination to make this right. Our instructors were from the banks and lenders.
I didn’t like that idea. I had originally thought that I would be instructed on procedures and goals by a third party entity called Promontory and or the government agency OCC. That did not happen. However, the training was interesting, and seemed straight forward, review the file, find the problems, and report them so they could be fixed. The goal, make wronged borrowers whole again as nearly as possible or so we thought.
After the training we arrived on the “floor” to begin a more in-depth training. We learned at that point that there was nothing ready for us to work on, but this nothing paid well, we could wait. Things did progress though, and our review procedures began to develop. We began in January, by April there were 500 of us at the location I was in and it was projected to reach 750 by June. Forty of us were actually reviewing files.
This is where we began to see the sham of the project. By the time I began reviewing files there were on 57000 files to review. The trigger for a review was that a borrower had to file a written complaint with the OCC. The problem with getting people to write a complaint was that all the advertising was direct mail to their homes and only to people that had been foreclosed on between January 2009 and December 2010. At a meeting involving the entire staff across the country (by phone) the question was asked “why just direct mail”, the answer, “TV, Radio and Print Media would attract too many of the wrong people and the banks and lenders didn’t want that.” When it was mentioned that it was two to three years after the borrower had been evicted we were told that “they should have put in a forwarding address with us”. I was dumbfounded, how could they expect people who lost everything to the bank to keep updating their addresses with the bank? It made no sense. But we kept plugging away at our task knowing now the battle was going to be tougher than we thought.
There was another issue. We were supposedly independent contractors, but we worked directly under bank and lenders authority and supervision. Any findings we made were quality controlled by the bank. Any findings we made came directly under the scrutiny of the bank. Any arguments over our findings, and whether they should be changed or not could and often did result in termination from the program without cause or warning and we had no recourse because we were contractors.
Other issues began to come up. Many of the tests and procedures we used to test a particular loan for harm to the borrower were State Specific in regard to the foreclosure laws of that State. As we began to delve into the files we found sometimes a dozen or more violations of the foreclosure laws with a specific file. The situation was becoming heated as Claim Reviewers (as we were called) began finding more and more issues of law, not to mention, incompetence, and immorality and poor judgment. Often times it was just a lack of communications between departments within the bank that caused the problem. None the less, there were tensions building between Claim Reviewers and bank managers as the list of harm on borrowers grew. However, the bank and the OCC did find a solution. Take the questions out of the tests we were doing that asked about issues of law. So one test that had 2200 investigative questions (there are about a dozen tests for a file review) now became about 550 questions. Issues of law were removed. At another of our group meetings we were told that if a borrower did not specifically cite the law or statute that was violated in their complaint that we were not to address a violation of law found in the file as it was now irrelevant to the issues at hand. When the questions was asked “how is a borrower going to know if a specific law or statute was violated since they are not trained in the law” the answer was that we only address what the borrower specifically complained about. The problem was that usually a borrower only had a feeling they got shafted somehow, but did not specifically know how. The complaint form also didn’t mention to the borrower that they had to be specific about issues of law. The form only asked generic questions about what happened. Now it was very evident that we were there as window dressing and not the compassionate heroes we thought we were.
Those were only the general issues that were causing friction. The sham was becoming more and more evident in the details. Some of the details involve foreclosure timelines, missing documents, misapplied funds, multiple modifications and similar programs at one time, it was amazing.
For example, in one case I reviewed the borrower paid approximately 25K to reinstate his mortgage. Then he began to make his mortgage payments as agreed. Each time he made a payment the payment was sent back stating he had to be current for the bank to accept a payment. He made three payments and each time the response was the same. Each time he wrote and called stating he had sent in the $25K to reinstate the loan and had the canceled check to prove it. After several months the bank realized that they had put the 25K in the wrong account. At that time that notified him that they were crediting his account, but because of the delay in receiving the reinstatement funds into the proper account he owed them more interest on the monies, late fees for the payments that had been returned and not credited and he was again in default for failing to continue making his payment. The bank foreclosed when he refused to pay additional interest and late fees for the banks error. I was told that I shouldn’t show that as harm because he did quit making his payments. I refused to do that.
There was another instance when there was no evidence that the bank had properly published the notice of sale in the newspaper as required by law. The argument the bank made when it was listed as harm to the borrower was “here is the foreclosure sale deed, obviously we followed proper procedure, and you should change your answer as to harm.”
Often there is no evidence of a borrower being sent a proper notice of intent to accelerate the mortgage. When these issues are noted in a file we are told to ignore them and transfer those files to a “special team” set up to handle that kind of situation. You choose whatever meaning you like for that scenario.
As far as modifications and forbearance go, I saw multiple cases in which a borrower would be given a forbearance agreement. It would be signed and properly executed and before the borrower could make the first payment the borrower would be offered a trial modification. Before that payment was due the borrower would be offered a permanent modification, but because there was already in forbearance and a trial modification offered and in place the borrower would be told that he/she must cancel the other offers in writing. Once that was done the modification offered would be denied for lack of performance on the other programs offered and then further assistance would be denied because of the borrower turning down assistance on the other programs. Then the argument was that we shouldn’t say the borrower was harmed financially because he turned down the help offered.
Time after time scenarios would go something like this. The borrower would call in and ask for help with a modification. Usually they called or were referred to the collections department. The bank employee would tell the borrower that in order to receive help they must bring the mortgage current. The borrower would send the money in, usually to the bank collection agent who gave the information and then the modification department would deny the borrower assistance because the mortgage was current and they had to be behind to receive assistance. Of course the bank argued that there was no harm because the borrower obviously could make the payment.
More often than not a borrower would be foreclosed on even though the bank had said they could apply for a modification if they would send in the financial paperwork required. The borrower would do this, 2, 3,4,5,6 or more times and the bank would “loose” the paperwork time and time again, until the house was finally foreclosed on. The borrowers would call, write, and call immediately after faxing the paperwork, be told it was received only to be denied later because they failed to send in any paperwork. The banks argument was that there was no harm to the borrower because they didn’t send in the paperwork, even though more often than not with a little searching the paperwork would be found in the system somewhere.
Often the paperwork would be sent in and not reviewed for four, five or six months and then the borrower would be sent a letter requesting they send it again because everything the bank had was too old to use. Many times this was done even after the home was already sold at foreclosure. The argument by the bank was no harm was done because they did not send the paperwork again.
The bottom line, agree or be fired. When the independent contractors who are there to independently judge the situation are ruled and judged by the very people that are responsible for the debacle in the first place is ludicrous. So many times I was told to not argue because I could be let go without notice or cause, it was difficult to hold my tongue. Most people would change the results and simply make notes in the system about being ordered by management to make the changes. But the banks and lenders control the notes. Others left the position. I actually thought there was hope when the OCC took the decision about financial harm to the borrower away from the banks and lenders and gave it to Promontory. It was called the H test. But that was short lived when we were told the banks and lenders were being allowed to form review teams to determine if Promontory made the right decision about financial harm. That was decided by the OCC. The joke is on the American people. Actually, the American people are being made the punch line.

That’s the bottom line: someone needs to find a prosecutor who’s willing to prosecute. Then you can testify.

The problem with the American system is that private prosecutions have been eliminated, grand juries have been neutered, and DAs have been bought. I think the weak spot in this wall of corruption is the DAs, but I’m not sure how to target it. If enough cases of fraud *in the same district* could be assembled, it might be sufficient to run an election campaign….